Govenor Arnold Schwarzenegger declared a fiscal emergency yesterday and called the state's politicians into a special session to address California's $11bn (£7.4bn) deficit.
The state's revenue gap is expected to hit $28bn over the next 19 months without bold action. The emergency declaration authorises the governor and politicians to change the existing budget within the next 45 days.
Without quick action, the state is likely to run out of cash in February.
Schwarzenegger and Democrats have proposed a combination of tax hikes and spending cuts, but Republican politicians are steadfast in their refusal to raise taxes.
Politicians failed to reach a compromise during the special session Schwarzenegger declared last month, pushing the problem to a new Legislature that was being sworn in yesterday.
The crisis worsens each week, so the Republican governor did not want to waste any time in declaring a special session, said his spokesman, Aaron McLear.
"It's important that we start on Day One so the new Legislature can start immediately to solve our fiscal crisis," he said.
There appeared to be little reason to believe that Republican politicians would budge on their opposition to tax increases.
"If anything, I think our resolve (against raising taxes) is deeper than it has ever been because of the economic realities," Senate Minority Leader Dave Cogdill said yesterday.
Democrats don't have the two-thirds majority in either the Assembly or Senate that is required to pass tax increases or a state budget.